Indian Arbitration And Conciliation (Ordinance) Amendment Act, 2015: A Panacea For Indian Arbitration System.

by Arpit Chaudhary

Introduction

With the explosion in the litigation, a matter of increasing concern isthe backlog of about of thirty million cases pending across the country[1] which is largest number of backlog of cases in the world. Substantially, the option of Alternative Dispute resolution comes in the picture which expeditiously solves and helps to clear the commercial and mostly non-criminal issues.

With the increasing commercial activities across the world, more so, in the wake of globalization, the settlement of disputes by arbitration has also increased significantly. In fact, it is a much more preferred mode, when compared with adjudication of such disputes through the Court of law.[2] Arbitration is a branch of ADR where the decision by the arbitrator(s) has a binding nature on the parties. The system of arbitration in India had always been abysmal until the Arbitration and Conciliation (Ordinance) amendment, 2015 came. If the way in which arbitration proceedings were conducted under the 1940 Arbitration Act had made lawyers laugh and legal philosophers weep in view of unending prolixity, at every stage providing a legal trap to the unwary, the attempt to correct it under the 1996 Arbitration Act also failed. Arbitrators were competing with Courts to make it slower and expensive! Clients felt they were being fleeced by arbitrators.[3]This is the very reason that parliament amended the Arbitration and conciliation act 1996 and ensured such provisions that would result in curbing down such delicate issues. The Arbitration Ordinance is largely based on the recommendations of the 246th Report of the Law Commission of India.[4] Many of the changes are welcome and can provide a significant impetus to improving the culture of arbitration in India. If implemented purposively, these amendments will serve to make arbitration in India more efficient and better aligned with international standards.

Dispute solved expeditiously and provisions for fast track courts

Earlier, it was a common picture that arbitration was used to be a very lengthy procedure, where, arbitration going on for year’s altogether and fee increasing compared to the very base that was decided by the parties. To curb down this very issue a provision is made under section 12(1) (b) of the act which specifies that an arbitrator shall have to disclose in writing that he is able enough to give time to the particular matter as presented by the respective party and he will devote enough time to complete the entire matter within a period of twelve months. It is implied from the very provision that the parties will have full confidence in the arbitration proceedings and they will not have to wait for long periods of time for the declaration of awards. However, the provision is very controversial as their may be such disputes which may take more than the time disclosed by the tribunal but prima facie it pressurizes the arbitrator to complete the matter and ensure that arbitral tribunal makes the award within twelve months. Failing to it, the mandate of the arbitrator(s) shall be terminated unless the court extends the period. Moreover if the court finds that the delay was caused due to the fault of arbitral tribunal then, the court has the power to reduce the fee of the arbitrators, not exceeding 5% of the total agreed fee, for each month of delay.[5] If you think that the provisions are way too cruel for the arbitrators, than think again because the provisions also lays down ‘additional fee’ for the arbitrators if the dispute is disposed within six months and the parties agreed to it. If the arbitrator overshoots the period, the parties can extend the time to a maximum of 6 months, but thereafter the mandate of the arbitrator gets terminated, unless extended by the court. Honorable Mr. Justice A.K Sikri, Judge, Supreme Court of India also mentions that the constitution of the Arbitration tribunal should be without a delay.[6] He mentions that this is a matter of serious concern. Though 1996 Act conferred greater autonomy on Arbitrators and insulates them from judicial interference, it does not fix any time-frame for completion of the proceedings.[7]. Thus the new act sets a time limit on the arbitrators and it will surely ensure speedy delivery of justice.

Further, an amendment has also been made in section 24 making it compulsory to hear the arbitration proceedings on day to day basis. It will ensure speedy delivery of cases and will maintain an average number of cases being investigated by the tribunal on the daily basis. This section also clears it out that the arbitration will not be adjourned ‘unless sufficient cause is made out’. It technically curbs down the length of the cases and ensures rationale adjournments.

 Section 29(b) includes a very effective procedure prima facie tackling the problem of delay in arbitration. The procedure mentioned is about installing fast track courts. It states that on the consensus of the party to the arbitration, they have an option to resolve their dispute through fast track procedure[8]. Fast track courts provided under Section 29B provides that the award is to be made within a period of 6 months from the date the arbitral tribunal enters upon the reference.[9] Section 29A deals with the time limit given in the declaration of arbitral award, this section imposes a duty on the arbitration tribunal – ‘award under this section shall be made within a period of twelve months from the date the arbitral tribunal enter upon the reference.’[10] The parties can choose to resolve the issue in this procedure either before or at the time of appointment of the arbitral tribunal. Therefore, the amendment clears itself out and confirms standard and effective procedure that abides by the fundamental right provided by our constitution i.e. right to Speedy trial. Expeditious right is a basic right to everyone and cannot be trampled upon unless any of the parties can be accused of the delay.[11]  Fast track court deals with speedy disposal of cases to make the judiciary more effective and to impart justice as fast as possible which is all good because justice delayed is none or less same as injustice.

Arbitrators are neutral and arbitration is more effective

It is a very clear fact that if the arbitrator for a particular case is biased then he will incline to the benefit of the respective party. Therefore, the main features of arbitration proceedings are flexibility, promptness and confidentiality. This tendency is well described in the article of Henry Gabriele and Anjanette H. Raymond, where it stated Arbitration, which was once a relatively small part of the Alternative dispute resolution system, has become a large institution in its own right”[12]. There might be a possibility that the arbitrator is more inclined towards the position of the party who shares with him the same language, culture, or say, general value system. To protect the right of the other party, the ordinance under section 12 (a) cast an obligation upon the prospective arbitrator to make an express disclosure on circumstances which are likely to give rise to justifiable doubts regarding his independence or impartiality. The parties opting arbitration as a medium to resolve the dispute also have to submit in written specifying their neutral relation or no connection with the arbitrator(s). The parties opt arbitration to pursue the aim to escape the “hostile jurisdiction of the foreign state courts”[13]. If the arbitration proceeding is impartial then it hampers the very decision of the parties and they think that their money, time and effort is in vain.

Further, to ensure a standard fee structure, the ordinance introduce fourth schedule which talks about the determination of fees of the arbitral tribunal. It talks about the manner of payment made to the arbitral tribunal and the power of High Court to “frame such rules as necessary”. However, since the High Court of each State is required to frame rules after taking into consideration the rates mentioned in the Fourth Schedule, this may lead to a disharmonized fee regime. The ambit of such provision i.e. Section 11(14) is confined to arbitration proceedings in India. It does not account for international commercial arbitration. The section specifies the amount of sum in dispute and accordingly the model fee that is supposed to be charged by the arbitral tribunal. Some commentators have argued that arbitration cost undercut to the benefits to consumers and employees especially in the case of contingent fee contract, which permit the claimant to defer payment of arbitrators’ fees and litigation expenses.[14]Therefore such provision prima facie stands guard to the interests of both the arbitrator(s) and the respective parties. The fee structure is explicitly provided in the fourth schedule which inter alias leaves no room for doubt.

Supreme Court in the case Bharat Aluminium and company vs. Kaiser Aluminium and company[15], gave a judgment stating no jurisdiction of Indian court to intervene in arbitrations which were seated outside India. Thereby, not letting interim order made by arbitral tribunal outside India being enforced in India. So, if the arbitration is outside India and the assets of the party are in India, further, there is a dispute of such assets, the other party outside India could not approach the Indian courts for interim orders. This anomaly has been addressed in the Amendment Act with the insertion of Section 2(2), which makes the provision for interim relief(s) also applicable in cases where the place of arbitration is outside India, subject to an agreement to the contrary. Thus the interests of the parties outside India are well protected by this amendment. This will encourage foreign markets to invest in Indian Arbitration which will lead to economic growth.

Amendments have been introduced to the Arbitration Act to effectively incorporate by reference the IBA Guidelines on Conflict of Interest in International Arbitration which are widely acknowledged to reflect best practices in ensuring the impartiality and independence of international arbitrators. The IBA Guidelines have adopted a traffic light system[16] of designating situations of potential conflict of interest into red, orange and green whereby:

  • The Red List is an enumeration of specific situations giving rise to justifiable doubts as to an arbitrator’s impartiality and independence. This list is divided into non-waivable and waivable situations.
  • The Orange List is an enumeration of specific situations that in the eyes of the parties may give rise to justifiable doubts as to an arbitrator’s impartiality or independence.
  • The Green List is an enumeration of specific situations in which there is no appearance of a lack of impartiality and independence and so no conflict of interest exists.

The Amendment Act has borrowed the disclosure requirements from the IBA Guidelines on Conflict of Interest in International Arbitration. The Fifth and Seventh Schedule has been inserted which provides a guide in determining circumstances for ineligibility of the arbitrator. It talks about the disclosure requirement of an arbitrator. However, The Amendment Act does not address the issue of confidentiality in arbitrations.

New provisions relating to the declaration of award

As already mentioned about the provision, that, the declaration of the award shall be ensured in 12 months. The new act also supervises the challenged award and checks if the award does not go against the public policy. Public policy is one of the grounds mentioned in the New York Arbitration Convention based on which a party can challenge the enforcement of a foreign arbitral award.[17] ‘One important loophole, which may long be troublesome.’[18]. American Arbitration Association referred mala fide enforcement of arbitral award in relation to public policy as troublesome. The act introduces section 34 relating to grounds for challenging an arbitral award, challenging on the grounds of ‘Public policy’. Now, as the term Public Policy differ in different countries because of the Social, political and geographical differences. In India, explaining that only where making of award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India. However, A two judge bench of the Supreme Court in Radhakrishna v. Maestro Engineers[19] (“Radhakrishna judgment“), held that issues of fraud are not arbitral. However, the Single Judge of the Supreme Court, while deciding a petition under Section 11 of the Arbitration Act, in Swiss Timing Ltd. v. Organising Committee[20], held that judgment in Radhakrishna judgment is per incuriam and therefore not good law. This was an interesting point which was rectified as it would had made the range of arbitral issues narrow. Adding to that, the amendment to section 34 requires a court to decide a challenge to a domestic award within a one year timeframe. However, quite inexplicably, the Arbitration Ordinance has not specified a corresponding timeline for the enforcement of foreign arbitral awards. Against the backdrop of the White Industries decision[21] (where India was held to be in breach of its BIT obligations for the failure of its courts to enforce a foreign arbitration award within a reasonable timeframe), this omission is indeed baffling and requires to be corrected urgently. [22]

Conclusion                             

It is a fact that the arbitration in India was not up to the mark when we compare the arbitration proceedings and standards that prevail in the other countries in time. India was a naive in this particular field and as a result, no other party or company wanted to resolve the dispute through arbitration, in India. The Arbitration Amendment is a significant step forward in overcoming the systemic malaise of delays, high costs and ineffective resolution of disputes, which had plagued the arbitration regime in India. Most of these amendments are welcome, since many would agree that the earlier arbitration regime was a failure, and did not result in cultivating the culture of arbitration in India The Arbitration and Conciliation (Amendment) Bill, 2015 looks promising and strengthens the position of arbitration in India, remove the loopholes from the previous act and brings the arbitration in India at par with the international standards. Now, with such explicit provision, the foreign investors will have the very trust and confidence to invest into the arbitration and it will help them to ease their business in India. However, some of the amendments require finessing and a more thoughtful approach to drafting could have avoided certain inconsistencies which exist amongst different parts of the Arbitration Ordinance. For Example- the amendment has been a futile in deciding whether to apply the act prospectively or retrospectively, thou, some of the section mention prospective application of the act but in toto the amendment fails to address this important fact. The act introduces amendments which are in line with the recommendation which have been approved or suggested by the law commission of India, August 2014. The Amendment Act is most certainly a welcome move and has been hailed for providing the much needed impetus to the growth of the Indian arbitration regime. Despite some deviations, the Amendment Act is largely in consonance with the Law Commission Report and the Arbitration Ordinance. The bill tends to act as a panacea and is removing the dubiousness and uncertainties which prevailed due to the previous Arbitration and conciliation act, 1996 which govern the arbitration in India at that time. The new act is making new roads for India, whereby, India is sharing experience at par with the world. The intentions of the Ordinance are clear and laudable. It seeks to make India a more arbitration friendly jurisdiction – both for India seated and foreign seated arbitration.


Arpit Chaudhary is a third year student at HNLU


endnotes  

[1]Ram Mashru, Justice delayed is justice denied: India’s 30 million cases judicial backlog, The Diplomat, December 25, 2013.

[2]Justice A.K Sikri, Reforms in commercial arbitration, Madras L.J. 1, (2015).

[3]AnilXavier, Amendment of Indian Arbitration act, live law, (2015).

[4] Pramod Nair,’When good intentions are not good enough: The arbitration ordinance in India, Bar & Bench  November 4, 2015  ColumnsLaw & Policy Columns. http://barandbench.com/when-good-intentions-are-not-good-enough-the-arbitration-ordinance-in-india/

[5] Section 29A(4), Arbitration and conciliation (Amendment) act, 2015

[6] Justice A.K Sikri, Reforms in commercial arbitration, Madras L.J. 1, (2015).

[7] Dr. Justice AR Lakshmanan, Road ahead for arbitration in India, Madras L.J

[8] Section 29B (1) of the act mentions about fast track courts which are further specified in the Section 29B(3) of the respective act.

[9] Section 29B(4), Arbitration and conciliation (Amendment) act, 2015.

[10] Section 29A(1), Arbitration and conciliation (Amendment) act, 2015.

[11] Hussainara khatoon vs. State of Bihar 1979 AIR 1369, 1979 SCR (3) 532

[12] Henry Gabriele and Anjanette H.Raymond, ethics for commercial arbitration: basicprinciple and emerging standard in symposium on professional responsibility and professionalism, Wyoming law review.

[13] Aleksander Jaksic Procedural guarantees of Human Rights in arbitration proceedings- A still unsettled problem? Journal of International Arbitration Vol. 24, No. 2, April 2007.

[14] Drahozal, Chritopher R., Arbitration costs and contingent fee contracts, Vanderbilt Law review, 727, 2006.

[15] (2012) 9 SCC 552

[16] Supra note 4

[17] Sameer Sattar, Enforcement of arbitral awards and public policy: Same concept, different approach?

[18] Straus referring to the public policy defence in Straus, ‘Arbitration of Disputes Between Multinational Corporations’, in New Strategies for Peaceful Resolution of International Business Disputes, American Arbitration Association (1971) 109 at 114

[19]  (2010) 1 SCC 72

[20] (2014) 6 SCC 677

[21] White industries Australia limited vs Republic of India, UNICITRAL (1976)

[22] Supra note 4

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